Changing shipping terms with the Russia-Ukraine conflict: Grain market daily

Market commentary

• OId crop UK wheat futures (May-22) closed yesterday at £318.50/t, gaining £1.25/t on Wednesday’s close. New crop futures (Nov-22) closed at £283.00/t, down £2.10/t over the same period.
• Old crop futures rose with Paris wheat futures (May-22), which gained €7.25/t across the day to close at €405.75/t.
• Pressure was felt across all contracts for Chicago wheat futures on technical selling and profit taking. Further to that, Sovecon’s latest forecast pegs the Russian 2022 wheat crop to a record 87.4Mt. up 900Kt on previous estimates.
• Paris rapeseed futures (May-22) closed at €1064.50, gaining €20.25/t across the day. New crop futures (Nov-22) ended down €1.75/t at €829.25/t.

Changing shipping terms with the Russia-Ukraine conflict

With the war in Ukraine still raging, the freight trading agreements that Ukraine uses to export its commodities to the world has changed. What does this signify?

Freight shipping, including grains and oilseeds, is generally on a FOB and CIF Basis.

Free On Board (FOB) – This is an agreement where the goods are sold delivered to a specific location or port.

Once delivered to this location the buyer of the goods is responsible for the shipping costs and transportation of the goods. However, in this situation the seller is responsible for loading the goods onto the buyer’s charted method of transport.

Cost, Insurance, and Freight (CIF) – This is an agreement that the seller covers everything of the buyer’s order until delivery at destination. The seller bears the costs of anything that is lost, or damaged. Furthermore, additional customs duties, export paperwork, inspections or diversions expenses are covered by the seller.

Ukraine – alternative shipping agreements

Since the conflict, commodity exports out of Ukraine have been limited due to logistical challenges and increased buyers risk. To try and circumvent some of these challenges, some Ukrainian exporters are offering a third shipping option to purchases.

UkrAgroconsult have recently been quoting grain and oilseed prices out of Ukraine (Western border) on a DAP basis, which will be linked to the rail freight logistics.

They have also been quoting prices on a CPT and EXW basis out of Ukraine (with no specific location cited). 

Below is a brief explanation of these terms and how this changes responsibility and ownership in a time of uncertainty.

Delivery at Place (DAP) – This is the method used at the Western border of Ukraine. This agreement is where the seller takes ownership of all the risks and costs of delivering the commodity to an agreed location. The buyer only takes over risk and responsibility of unloading and clearing for import.

With grains and oilseeds leaving the Western part of Ukraine, this is probably the “less risky” method of purchase currently as the onus is upon the seller to deliver.

Ex works (EWX) – This is another term used in Ukraine. In essence it means that the seller is not obligated to load the commodity onto the buyer’s method of transport. This differs from a FOB basis, where your seller is responsible for this. On a EWX basis, the seller is only responsible to make sure the goods are available at a selected location.

This agreement reflects the current situation in Ukraine where infrastructural damage may not make it feasible to agree shipment on a FOB basis.

Carriage Paid To (CPT) –On the surface this agreement is similar to the CIF basis mention above. It’s the cost of bringing a commodity to an agreed destination. However, with caveats that make is quite different to CIF.

The buyer is responsible for import requirements, local delivery and unloading charges. Further to that, once the commodity is delivered to the first carrier, usually the port, the delivery is fulfilled on the seller’s side and the buyers risk begins.

The seller is responsible for the costs, but the risk and responsibility are transferred to the buyer. This method of agreement again reflects the current situation in Ukraine, with challenges ensuring the goods will arrive at the agreed destination.

Conclusion

There is a lot of unknowns around what will happen next in this region. Exports are currently very limited out of Ukraine. However, we could start to see an uptick in volumes, as Ukrainian exporters offer to burden more of the risk in an attempt to move old crop grain prior to harvest 2022. If these routes become more established and successful, we may see some softening in old crop prices if global availability increases. However, with the ongoing conflict, shipments could well be sporadic.

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